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In every culture, corruption is a true monster that impedes progress and fosters inequity. However, the relationship between corruption and economic growth is more complicated than that, as it raises the so-called "corruption paradox," which casts doubt on the notion that corruption can act as both sand and grease in the economy in certain situations.
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This paradox illustrates the notion that, although corruption is typically seen as a barrier, it can occasionally facilitate economic transactions in situations when informal institutions perform poorly by acting as a lubricant.
Therefore, let's take a careful look at this paradox by examining the reasons why corruption can occasionally be considered to have duality and highlighting relevant case studies, data, and instances.
A GREASE FOR ECONOMIC ACTION: CORRUPTION
In a setting with insufficient formal institutions, corruption may result from an acceleration of economic transactions or movements. In actuality, bureaucracy's inefficiency is always linked to the way it slows down laborious tasks like navigating government operations but it also makes legal work and business easier. Samuel Huntington's 1968 work on corruption, presented a perception about how complex bureaucracy is and its interplay with corruption.
He quoted that "the only thing worse than a society with a rigid, over-centralized, dishonest bureaucracy is one with a rigid, over-centralized and honest bureaucracy".His theory famously talks about how bribery can "grease the wheels" of commerce, as it allows entrepreneurs in their businesses without being entirely stifled by any bureaucratic interference. Thus, according to his theory, corruption can facilitate economic activity by removing the burdens that were earlier imposed by bureaucratic red tape.
Bribes are paid to speed up decisions in nations with extensive bureaucracy. For instance, issuing licenses, permits, and other paperwork through official channels can take months or even years in many developing nations.
In the Indian context, it is common to observe the very evil that is required to get over bureaucratic red tape. Many companies would say that bribing local officials or government workers is sometimes essential to completing tasks more quickly. This is a classic example of corruption lubricating the wheels of a weak economy.
China's case: Corruption and China's rapid economic growth have had a conflicting connection. This is sometimes seen as a way to get around in generating potential business prospects. "It doesn't matter whether the cat is black or white as long as it catches mice," said Deng Xiaoping, the late Chinese reformer. Hence corruption was seen as an instrument of growth while transitioning to a market economy.
THE 'SAND' EFFECT: HOW CORRUPTION PREVENTS ECONOMIC DEVELOPMENT
Corruption has grown to be a major obstacle to economies' qualitative development. Inefficiency, unfair distribution, and a loss of societal trust are the results of corruption that develops and remains systematic and entrenched. Most people associate corruption's effects with this common "sand" effect.
Public money that could otherwise be used to support vital industries like social welfare, infrastructure, healthcare, and education are diverted by corruption. For example, when government officials steal or bribe, public expenditure becomes less effective and poverty and inequality are further entrenched.
An example would be Nigeria, which ranks 145th on the 2023 CPI and has severe corruption at all governmental levels. In this country corruption has led to massive losses in the oil industry, and contributed significantly to the nation's earnings. This has not only affected the economic growth of Nigeria but also fed poverty and instability.
Decreased Foreign Investment: Corrupt governments are seen as too hazardous to do business with, corruption deters foreign investors. For instance, according to Transparency International's annual CPI, nations with extremely high levels of corruption—such as Somalia, Zimbabwe, and Venezuela—generally receive far less investments than those with extremely low levels of corruption, like Singapore or Denmark.
Russia, for example: Russia's widespread corruption, particularly in sectors like government procurement and energy, is one of the primary reasons why international investment has been discouraged in the country for the past 20 years.
THE EQUILIBRIUM: WHEN CORROSION SERVES AS GREASE AND SAND
In reality, depending on the industry, level of government participation, and institutional structure in place, it can operate more like the economy's sand or grease at times. Therefore, corruption may have mixed effects in certain situations, including both positive and negative outcomes.
Corruption frequently acts as the first lubrication that permits corporate operations to occur in underdeveloped nations with institutions that have poor governance frameworks. Very little time is lost navigating between bureaucratic levels, and all bottlenecks are avoided.
However, the grease eventually turns to sand, which undermines public confidence, stifles creativity, and widens the gap. The two-edged function is evident in many emerging nations that exhibit both evidence of rapid economic growth in the near term and high levels of corruption.
Brazil is an additional example of a contradiction. Corruption's systematic character also led to economic inefficiencies and disparities, which ultimately resulted in the widely reported scandal known as "Operation Car Wash." Operation Car Wash is a huge anti-corruption investigation which began in Brazil in March 2014.
Primarily focusing on a small car wash in Brasília, the operation quickly spread over to uncover a whole network of corruption involving state-controlled oil company ‘Petrobras’ along with various high-profile business professionals and political leaders. This demonstrated how the nation's political and economic structure was seriously harmed by pervasive corruption at the corporate and governmental levels.
THE LONG-TERM EFFECTS OF SYSTEMIC CORRUPTION
Even though corruption might occasionally provide short-term advantages, it usually has negative long-term implications. It creates inequality, renders government initiatives ineffectual, and takes funds or resources away from vital areas like infrastructure, healthcare, education. Additionally, the current ability of institutions to combat corruption itself is undoubtedly compromised by a cycle in which the more corruption, the worse the government.
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South Korea, for instance, presents an intriguing contrast in that corruption, manifested in the form of "crony capitalism" and state-led industrial policy, played a key role in the nation's explosive economic growth in the 1960s and 1970s, but as the nation's institutions grew more advanced and democratised, these problems were ultimately resolved. South Korea is now ranked 39th on the CPI, reflecting its efforts to streamline the system and establish a more open and effective economy.
INDIA'S CORRUPTION: AN ANALYSIS
In India, the term "corruption" is used frequently; and is deeply ingrained in the country's sociopolitical landscape. Bribery, nepotism, embezzlement, as well as extortion from all levels of government—be it local governments to federal institutions—are the most significant examples. In reality, corruption has posed a serious challenge to India's attempts to reduce social inequality and improve its economy.
India has ranked 93 out of 180 countries on the corruption perceptions index (CPI) for 2023, according to a report released by Transparency International. According to its ranking, many people often believed that the nation was rife with corruption in the public sector. More than 62% of Indians have recently admitted to paying bribes to government officials, with research showing that authorities requested 91% of these bribes.
According to estimates, corruption costs India some ₹2 lakh crores a year as a result of tax evasion and project delays.
THE GREASE VS. SAND ARGUMENT
In the context of development, the question of whether corruption is sand or grease is especially relevant to India. One presents the "grease-the-wheel" viewpoint, according to which corruption may quicken a process that is typically slowed down by ineffective bureaucracy in some regulated industries. Businesses could, for example, pay a bribe to get licenses that are urgently needed or get around complicated rules.
Empirical research, primarily in highly regulated industrial sectors, has demonstrated that a combination of corruption and regulation improves productivity assessment measures. However, from the standpoint of market processes and resource allocation into components, the "sand-the-wheels" method implies damage caused by corruption.
Corruption would distort the markets or create an atmosphere where businesses would choose to spend money on bribes over innovation or growth.
In conclusion, corruption has both positive and negative effects on an economy. Even in places with poor institutions and corruption, it can occasionally stimulate economic development. However, because it reduces efficiency, raises inequality, and undermines institutions, it typically becomes a significant barrier to sustainable growth in these areas over the long term.
This has made it crucial for politicians to comprehend this dichotomy and take steps to lessen corruption while also establishing institutional frameworks that would guarantee that many people benefit from economic prosperity.
Long-term objectives call for the complete elimination of corruption in order to create an atmosphere of effective and open procedures that support economic growth. So to promote healthier, more transparent, and sustainable economic environments, it is crucial to work towards reducing corruption through institutional changes and anti-corruption initiatives.
BY ISHITA SHARMA
TEAM GEOSTRATA
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